Rule of 40 Calculator
Rule of 40 for SaaS: revenue growth % plus profit margin % (EBITDA, free cash flow or operating) against 40 — the gap, what closes it, a weighted variant.
Growth and margin from two revenues and a profit figure (or as rates), the score against your target, the gap, the margin or growth needed to reach it, and a growth-weighted score.
Example: Revenue 12 M from 9 M (33.3 % growth) with 1.2 M free cash flow (10 % margin) scores 43.3 — passes by 3.3; at 25 % growth and 5 % margin it would need 15 % margin to reach 40.
Growth plus margin,
and which margin.
What the rule says, where the two numbers come from, and why the profit line matters.
The rule
Growth rate (%) + profit margin (%) ≥ 40: a software company growing 60 % may run at −20 %, one growing 10 % should earn 30 %. It is an investor heuristic from the 2010s, not a standard — the 40 is a convention you can change, and some readers weight growth (1.33 × growth + margin is one published variant, offered here as a weight you set).
The inputs
Growth is (revenue now − revenue a period earlier) ÷ earlier, on a full year or annualised; the margin is a profit figure over the current revenue. Which profit — EBITDA, free cash flow, operating or net — changes the score by whole points, so the page labels the line you chose and prints it with the result. Enter rates directly when you already have them.
Reading it
The gap to the target and the margin (or growth) that would close it are arithmetic. The rule says nothing useful about shrinking companies or early-stage ones with losses beyond revenue, and the page says so when it sees them. No benchmarks or peer data are embedded. Nothing leaves the browser; the same four anonymous usage counts as the rest of the site apply.
SOURCES
- Rule of 40: growth rate (%) + profit margin (%) ≥ 40 — an investor heuristic for software companies; the profit line (EBITDA, FCF, operating, net) is labelled, not chosen for you
Last reviewed 21 September 2026. How results are checked: How we verify.